Mainland investment in HK soars to $1.48b
Leu Siew Ying in Shantou
3 December 2004
South China Morning Post

Mainland investment in Hong Kong surged to $1.48 billion in the first nine months of the year from just $108 million for the whole of last year, with more mainland companies using the city as a platform to go global, Chief Secretary Donald Tsang Yam-kuen said yesterday.

Mr Tsang revealed the figures, compiled by InvestHK, to businessmen from Hong Kong and Shantou at a business seminar while making a case for Hong Kong's role in helping companies from the Guangdong city to grow their business overseas.

Some companies that had successfully set up in Hong Kong include Gome Electronics, New Hope International and Shenzhen Kingdee Software Technology, he said.

Hong Kong firms have invested US$5.3 billion in Shantou, making up 75 per cent of foreign investment. Thirty per cent of Shantou's exports go to Hong Kong.

During the seminar, Shantou Mayor Huang Zhiguang said his city had listed port-related sectors such as shipping, petrochemicals and logistics as its strategic industries.

Shantou has expanded its administrative area a further 108 sq km to cover 2,064 sq km this year. This followed last year's merging with Chenghai and Chaoyang townships, enlarging Shantou's area from 290 sq km to 1,956 sq km.

Tang Yuet-man , the Shantou branch manager of Bank of China (Hong Kong), said Shantou was well placed to develop port services to serve inland areas such as Meizhou and southern Jiangxi .

Mr Tsang is leading a 100-member business delegation to Shantou and Meizhou in response to Guangdong Party Secretary Zhang Dejiang call to help develop the province's eastern, western and mountainous areas.

Guangdong Vice-Governor Tang Binquan said the mission had a "very positive" impact on the promotion of co-operation between Guangdong and Hong Kong. "We have not decided on the actual activities we will have next year, but we will keep innovating and put into effect what we have achieved this year," he said.

HK retains role as China's gateway
Louis Beckerling
25 January 2005
South China Morning Post

Hong Kong's role as the mainland's preferred gateway to global capital markets is assured, with late starter Shanghai likely to be left to play catch-up, according to ratings agency Standard & Poor's.

"To date, Hong Kong has been the market of preference and once you establish superiority in market liquidity and practice, it is hard to reverse that," S&P managing director of corporate and government ratings Paul Coughlin said.

"We saw a lot of self-doubt about Hong Kong versus Shanghai about five years ago, [but] I don't think there is the same reason for that self-doubt now, and I think there is every reason for optimism that Hong Kong's role in China is looking stronger."

Support for the view came from Lorraine Tan, S&P's director of research, Asia-Pacific equity research services.

"If you look at the development of China's markets, they have been around for 20-odd years, and in the lifetime of most major markets, that is very short in order to achieve all the regulatory and transparency aspects that global investors expect when they invest in companies," Ms Tan said.

"For their part, I think the Chinese companies will still look to listing in Hong Kong because they know they can invest in an environment that is much more effective in terms of regulation and educating their own people as well."

The comments came at a presentation yesterday by S&P to mark the agency's 10th anniversary in Hong Kong.

Over the past decade, the city had evolved its services and legal infrastructure and seen the development of market professionalism, Mr Coughlin said.

"It has all the essential software that China has been unable to develop, and if you just look at the performance of the Hang Seng Index versus the Chinese indices, you will see that the performance of the Chinese indices has been very lacklustre. In part, this has to do with market infrastructure," he said.

However, Mr Coughlin warned the greatest threat to Hong Kong's status as a financial centre was the tendency of the economy to embark on "roller-coaster rides" that pitched it into a cycle of budget deficits, currency speculation and a collapse of confidence.

"In the medium term, to keep its ratings where they are - at a very high level - the issue is really can the government stabilise its revenue base," he said.

S&P director of sovereign and international public finance ratings Ping Chew said while this financial year now drawing to a close could end without a deficit, the question was whether this outcome remained sustainable.

To ensure this stability, the government should broaden its tax base with the implementation of a goods and services tax so that it was not captive to land tax revenues, he said.

But if there's a deficit, how come the government still needs to use money to help the lower-classes? The government has no money. And they want the middle-classes to pay more tax in order to have enough money to help the lower-classes and obtain no deficits? I don't understand?

Actually, the Hong Kong government is sitting on top of a lot of budget surpluses from previous years. There is money, and as the economy begins to pick up again, land sales will increase and there will be more leftover cash around to fund social programs. However, Hong Kong is a laissez-faire economy. The government has traditionally kept social spending low. Perhaps a better economy with improved job prospects will quiet the lower classes that have been hit hard by the recession, and the government can keep its hands-off approach without further spending.

Even though Shanghai's catching up, Hong Kong could still be a major gateway for SOUTHERN china, Shanghai for CENTRAL china, and Beijing for NORTHERN CHINA...

Knowledge goes far in 'village' of Hong Kong
Deborah King
26 January 2005
The Times

HONG KONG is bracing itself for a surge in demand as a business hub, Deborah King writes

The blend of Eastern and Western philosophies and culture are attractive to foreign investors, and with most business conducted in English, Hong Kong offers a straightforward experience for newcomers.

Its colonial past has also left it with a deep Western influence with business practices similar to those in the UK, and although it has become more influenced by the Chinese mainland, a few simple tips will help you to organise a successful business trip.

Bob Rayner, the Deputy Consul-General and Director of Trade and Investment says: "Hong Kong is like a sophisticated village. It is a close-knit community and a 'can do' place where networking is easy.

"UK companies need to know how to invest here, but we also show them how to market and develop their ideas. This is the first place I have lived in for 30 years, where I have felt like a local."

A useful networking tool is to join one of the many clubs. Most business people in Hong Kong belong to at least one. The oldest is the Hong Kong Club where business lunches are popular with members and their guests and a jacket and tie are essential. It is not always necessary to be a fully fledged member: two thirds of members of the Foreign Correspondents Club are associate members.

Hierarchy is also important and in accordance with Chinese business protocol, it is assumed that the first foreigner to enter the room is the most senior. Business lunches are still a growing phenomenon in China and Hong Kong, but during a formal meal the most important guest will usually be seated to the right of the host.

Dr Luen Chih-biau, senior executive for programme development at the Chinese University of Hong Kong, says: "Knowing about business etiquette stems from knowing about Chinese culture. There is already some familiarity though, for as well as the obvious Chinese traditions, other activities such as tea drinking have been influenced by Western culture."

Having connections, or guanxi, is another key influence in forging good business relationships. This is one of the main reasons foreigners find it hard to do business in China. "It takes time to establish a paperless network like this, based on trust and friendship, which might then lead to business," Luen adds. "But once guanxi is well-established, harvest time follows."

Hong Kong's Financial Industry Continues to Gain Momentum

HONG KONG, July 4 Asia Pulse - As an international financial center, Hong Kong development in the past eight years has been encouraging and it is continuing to gain momentum.

Stock, bond, insurance, and foreign exchange markets have all demonstrated strong and sustainable growth since Hong Kong returned to the motherland in 1997.

Paul Chow, chief executive of Hong Kong Exchange (HKEx) has said that June set another record for HKEx as total funds raised through companies' initial public offering (IPO) is expected to surpass HK$50 billion (US$6.4 billion), the highest amount for a single month.

Hong Kong ranked first in Asia and the third in the world last year in terms of capital raised with total IPO and post-IPO equity funds reaching some HK$265 billion (US$34.4 billion).

"Ten years ago, who would ever imagine that Hong Kong could raise more funds than London and Tokyo," Hong Kong Financial Secretary Henry Tang has said.

Meanwhile, market capitalization also hit a new high of about HK$6,650 billion (US$855 billion) at the end of last year, nearly 50 per cent higher than that of the pre-1997 level.

Hong Kong banks have enjoyed better profitability in the past eight years. Statistics provided by Hong Kong Monterey Authority show that aggregated pre-tax operating profit of retail banks in 2004 rose to 1.3 per cent from less than 0.9 per cent when the Asia Financial Crisis swept the region.

The profitability attracted most of the world's leading banks to operate in the city. So far, among the world's 100 largest banks operate in Hong Kong, 75 per cent conduct business here.

Compared with their counterparts in other regions, Hong Kong banks boast a minimum adequacy ratio of 16 per cent, far beyond the international capital adequacy framework - the Basel Committee's requirement of 8 per cent.

Most fund-raising activities in Hong Kong are carried out through banking facilities and the stock market. The relatively weak bond market, in Henry Tang's eyes, means that "the market has ample room to develop".

In the past few years, Hong Kong Special Administrative Region government has led several initiatives to develop the local as well as the regional bond market.

Last July, the Hong Kong government launched its HK$20 billion (US$2.6 billion) global bond offering. This was the largest dual-currency and multi-tranche offering from the region available to both retail and institutional investors.

It also generated the largest subscription and issue amounts for a retail bond offering in Hong Kong.

Hong Kong's foreign exchange reserves remained the world's seventh largest in May at US$122.4 billion.

Meanwhile, Hong Kong ranks the sixth largest Forex market in the world, and seventh largest market for the over-counter Forex derivatives.

Like banks, the insurance companies prosper in Hong Kong. The total revenue premiums of long-term in-force business collected by the insurance industry hit HK$1 trillion last year.

Hong Kong is already a major asset management center in Asia. In 2003, total assets of fund management business amounted to HK$2,950 billion (US$380 billion), of which HK$1,860 (US$239 billion) were sourced from overseas investors and accounted for 63 per cent of the total.

"The potential to expand our asset management business remains considerable, given the vast pension scheme assets held by banks, fund managers and insurance companies in Asia, coupled with the continued growth of personal saving in the mainland," said Henry Tang when announcing the 2005/06 Budget in March.

It is not a coincidence Hong Kong has succeeded in all these financial sectors. For 11 consecutive years, Hong Kong has ranked as the freest economy in the world by the Heritage Foundation.

The city also ranks as the second most competitive economy in the world and the most competitive in Asia according to the World Competitiveness Yearbook 2005 released by the International Institute for Management Development in May.

According to Henry Tang, Hong Kong's virtue lies with its business-friendly environment for all firms to compete on a level-playing field while maintaining an appropriate regulatory regime to ensure the integrity and smooth functioning of a free market.

Observers say that besides sound legal and regulatory framework, the Chinese mainland factors also add Hong Kong's attraction as an international financial center.

By the end of March, over 300 mainland companies are listed in Hong Kong, representing 28 per cent of the number of listed companies, and 30 per cent of the market value.

The impact of Chinese mainland companies on Hong Kong stock market is not limited within these figures. While granting themselves a new channel of fund raising, mainland companies are propelling the development and stability of Hong Kong's financial industry.

According to Charles Lee Yeh-Kwong, chairman of Hong Kong Exchange, Hong Kong has already demonstrated the will to continue to enhance its position as the premier international capital formation center for mainland companies.

Improving the financial regulatory system, enhancing corporate governance, promoting the bond market, reinforcing RMB business, promoting asset management, these are the five must-dos on Henry Tang's top agenda as he outlined in his Budget speech.

"I hope that the foregoing measures will encourage the further development of our financial services industry and strengthen our position as an international financial center," he said.

Mainland banks tipped to grab bigger HK share
Hong Kong Standard
Thursday, February 01, 2007

Mainland banks will see their market share in Hong Kong shooting up to 40 percent by 2010, Hong Kong Monetary Authority deputy chief executive William Ryback said Wednesday, amid growing integration between the territory and China.
Chinese financial institutions currently have a market share of about 25 percent in Hong Kong.

Ryback said mainland banks are using the SAR as a testing ground for their lending businesses and therefore it is likely they will expand in the territory at a quicker pace.

On the other hand, Hong Kong lenders will also see their businesses across the border increasing after China's banking industry officially opened up to foreign companies last year.

Ryback said about 7 percent of Hong Kong banks' business is related to China and he expects this percentage to climb as more local lenders incorporate their businesses in the mainland, a move which some market observers fear will make it more difficult to monitor Hong Kong banks.

Ryback dismissed such concerns and said the HKMA will strengthen its cooperation with the China Banking Regulatory Commission, and together the two bodies will adhere to the same set of principles that will be mutually beneficial.

With Chinese financial groups likely to be issuing yuan-denominated bonds in Hong Kong in the future, the battleground in the city's banking sector is likely to include more foreign players who would see Hong Kong as a more attractive investing environment on the back of China, Ryback said.

He said the local banking sector "remains strong and resilient" in general but the "uncertain interest rate environment" remains a challenge.

"The current level of interest rates will continue to prevail at least in the first half of 2007," Ryback said.

But he did not rule out the possibility that some banks may adjust their rates adhering to their individual pricing mechanism.

According to an HKMA report, the mortgage delinquency ratio and credit card charge-off ratio have both edged up slightly over 2006, but Ryback said that both increases have not reached the level of "an alarming uptick."

He noted that a volatile Chinese stock market, which dropped as much as 7 percent Wednesday, may have a negative impact on the Hong Kong stock exchange.

"It would not be unusual that anything that happens in China will eventually affect Hong Kong," Ryback said.

HK to get US$2b slice of CIC cake
Hong Kong Standard
Wednesday, July 11, 2007

The soon-to-be-established China Investment Co, which has been tasked with investing abroad US$200 billion (HK$1.56 trillion) of China's foreign exchange reserves, is likely to pour at least US$2.2 billion into Hong Kong's stock market, according to Citigroup Global Markets.

"Hong Kong would gain, either as an investment destination or from helping CIC invest overseas," Citigroup Global Markets analyst Joe Lo wrote in a report released Tuesday.

Hong Kong's stock market is likely to gain at least US$2.2 billion of investment from CIC, assuming they follow the market consensus in portfolio allocation, with US$1.5 billion going into local Hong Kong firms (excluding HSBC) and another US$700 million going toward H shares and red chips, the report said.

"We think our estimate is conservative, and the actual CIC investment in Hong Kong could be larger," Lo wrote.

"If the CIC buys HSBC shares in Hong Kong, the benefit to Hong Kong's stock market turnover and the Hang Seng Index would be bigger than our estimation."

Lo believes the special Treasury bonds China plans to issue to raise capital for CIC will be issued in the next few months, which means CIC may start to operate before the end of 2007.

China's new reserve management policy could also benefit Hong Kong by strengthening the SAR's leading position as an asset management center in Asia, the report said.

Although Hong Kong's asset management industry is still larger than Singapore's, competition from Singapore has been heating up in recent years as the city-state provides incentives to attract fund management firms.

"CIC provides Hong Kong a big opportunity to expand its asset management industry and leave competitors far behind," Lo wrote.

Because of its geographical proximity and the central government's policy of supporting Hong Kong as an international financial center, the SAR has an advantage in providing the investment advisory, custody, and settlement services to help CIC invest overseas.

If Hong Kong can attract CIC to set up an investment office, it would enable Hong Kong's financial industry to earn US$200 million a year on service fees, the report estimated. Other Chinese insurance firms and pension funds may follow suit. "A massive flow of Chinese capital through Hong Kong to overseas markets not only strengthens the city's status as a financial center, but also brings a sizable amount of income," Lo wrote.

How do you remember where to post the new article? You started this thread in 2004, then instead of creating a new thread for your new article, you managed to dig up the one from 3 years ago and top it.

...

How do you remember where to post the new article? You started this thread in 2004, then instead of creating a new thread for your new article, you managed to dig up the one from 3 years ago and top it.

...
Hahaha .. I know the section inside out after posting so much for so long. :)

I'm trying to reduce redundancy as much as possible and combine similar themes to one thread.

Tianjin trial set to boost HK stocks
Hong Kong Standard
Tuesday, August 21, 2007

Millions could plow their money into the Hong Kong securities market following a trial initiated yesterday by the mainland to allow individuals to invest in stocks traded on the bourse.

The decision by the State Administration of Foreign Exchange came just days after a Beijing visit by a top-level delegation led by Financial Secretary John Tsang Chun-wah.

A government source said the pilot program will solidify Hong Kong's status as an international financial center and will help narrow the huge price gap between mainland-traded A shares, which trade at extremely high earnings multiples, and Hong Kong- listed H shares, which trade at relatively lower earnings.

The move is also in keeping with initiatives outlined in the Action Agenda on China's 11th Five-Year Plan and the Development of Hong Kong, the source said.

SAFE earmarked Tianjin's Binhai New Area for the trial run. In a statement on its website yesterday, the forex regulator designated Bank of China's (3988) Tianjin branch and its Hong Kong-based securities arm BOC International to handle transactions. All mainland citizens will be allowed to invest and it is not limited to residents of northern Tianjin.

Welcoming the initiative, Financial Secretary Tsang said it demonstrated "the mutually assisting, complementary and interactive relationship between the financial systems of the mainland and Hong Kong."

Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said the program was conducive to the interaction and the mutual development of Hong Kong and mainland financial markets, while bourse operator Hong Kong Exchanges and Clearing (0388) said quality investment instruments in the Hong Kong market are attractive to mainland investors. The Securities and Futures Commission also welcomed the program.

"Tianjin serves just as a window," said BOCI deputy chief executive officer Tse Yung-hoi.

A banker said the Tianjin BOC branch was named because Beijing has identified the city to carry out orderly capital account liberalization. Designating a specific branch to facilitate the flow of funds will allow authorities to monitor foreign currency transactions, the banker said.

Vincent Chan Cheong-wa, head of China research at Credit Suisse, said the program could be expected to "fundamentally change the dynamics of the Hong Kong market."

Stephen Green, senior economist at Standard Chartered Bank, said the pilot program will boost H shares.

Until now, mainland citizens were only allowed to invest overseas through banks, brokerages, insurers and fund managers licensed as part of the qualified domestic institutional investor program.

SAFE said individual investors will not be bound by a rule that restricts forex purchases to US$50,000 (HK$390,000) annually.

Investors may convert unlimited yuan into foreign currency and invest in Hong Kong. They could also retain their foreign currency earnings.

BOC and BOC (Hong Kong) (2388), the bank's Hong Kong business arm and BOCI's holding company, got a boost yesterday as their shares surged about 10 percent following the SAFE announcement. BOC jumped 10.8 percent to close at HK$3.77 while BOC (HK) rose 9.8 percent to HK$19.04.

"We hope that [the pilot scheme] can bring us new business, accounting for about 10 percent to 20 percent of our current average daily turnover," BOCI's Tse said. "We hope that the scheme can start this month."

He said BOCI accounts for a 4.44 percent share of average daily turnover on the Hong Kong bourse.

Qing Wang, chief China economist at Morgan Stanley, said the program would not be a negative to the domestic market considering excess liquidity. "Part of it spilling over to Hong Kong will not hurt sentiment much." He believes the spread between Hong Kong interbank offered rate and London interbank offered rate will hold steady.

Andrew Fung Hau-chung, deputy general manager and head of investment and insurance at Hang Seng Bank (0011), said the plan is a positive for Hong Kong.

Meanwhile, BOCI's Tse regards it as a breakthrough and believes the pilot scheme will not take over the role of qualified domestic institutional investor program, considering the different types of investment products.

But mainland investors are barred from investing in futures and derivative securities under the new scheme.

Tianjin trial set to boost HK stocks
Hong Kong Standard
Tuesday, August 21, 2007

Millions could plow their money into the Hong Kong securities market following a trial initiated yesterday by the mainland to allow individuals to invest in stocks traded on the bourse.

The decision by the State Administration of Foreign Exchange came just days after a Beijing visit by a top-level delegation led by Financial Secretary John Tsang Chun-wah.

A government source said the pilot program will solidify Hong Kong's status as an international financial center and will help narrow the huge price gap between mainland-traded A shares, which trade at extremely high earnings multiples, and Hong Kong- listed H shares, which trade at relatively lower earnings.

The move is also in keeping with initiatives outlined in the Action Agenda on China's 11th Five-Year Plan and the Development of Hong Kong, the source said.

SAFE earmarked Tianjin's Binhai New Area for the trial run. In a statement on its website yesterday, the forex regulator designated Bank of China's (3988) Tianjin branch and its Hong Kong-based securities arm BOC International to handle transactions. All mainland citizens will be allowed to invest and it is not limited to residents of northern Tianjin.

Welcoming the initiative, Financial Secretary Tsang said it demonstrated "the mutually assisting, complementary and interactive relationship between the financial systems of the mainland and Hong Kong."

Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said the program was conducive to the interaction and the mutual development of Hong Kong and mainland financial markets, while bourse operator Hong Kong Exchanges and Clearing (0388) said quality investment instruments in the Hong Kong market are attractive to mainland investors. The Securities and Futures Commission also welcomed the program.

"Tianjin serves just as a window," said BOCI deputy chief executive officer Tse Yung-hoi.

A banker said the Tianjin BOC branch was named because Beijing has identified the city to carry out orderly capital account liberalization. Designating a specific branch to facilitate the flow of funds will allow authorities to monitor foreign currency transactions, the banker said.

Vincent Chan Cheong-wa, head of China research at Credit Suisse, said the program could be expected to "fundamentally change the dynamics of the Hong Kong market."

Stephen Green, senior economist at Standard Chartered Bank, said the pilot program will boost H shares.

Until now, mainland citizens were only allowed to invest overseas through banks, brokerages, insurers and fund managers licensed as part of the qualified domestic institutional investor program.

SAFE said individual investors will not be bound by a rule that restricts forex purchases to US$50,000 (HK$390,000) annually.

Investors may convert unlimited yuan into foreign currency and invest in Hong Kong. They could also retain their foreign currency earnings.

BOC and BOC (Hong Kong) (2388), the bank's Hong Kong business arm and BOCI's holding company, got a boost yesterday as their shares surged about 10 percent following the SAFE announcement. BOC jumped 10.8 percent to close at HK$3.77 while BOC (HK) rose 9.8 percent to HK$19.04.

"We hope that [the pilot scheme] can bring us new business, accounting for about 10 percent to 20 percent of our current average daily turnover," BOCI's Tse said. "We hope that the scheme can start this month."

He said BOCI accounts for a 4.44 percent share of average daily turnover on the Hong Kong bourse.

Qing Wang, chief China economist at Morgan Stanley, said the program would not be a negative to the domestic market considering excess liquidity. "Part of it spilling over to Hong Kong will not hurt sentiment much." He believes the spread between Hong Kong interbank offered rate and London interbank offered rate will hold steady.

Andrew Fung Hau-chung, deputy general manager and head of investment and insurance at Hang Seng Bank (0011), said the plan is a positive for Hong Kong.

Meanwhile, BOCI's Tse regards it as a breakthrough and believes the pilot scheme will not take over the role of qualified domestic institutional investor program, considering the different types of investment products.

But mainland investors are barred from investing in futures and derivative securities under the new scheme.

excellent news for hk!!

`Direct train' stuck at starting gate
Hong Kong Standard
Tuesday, August 28, 2007

The Tianjin-based Hong Kong stock investment experiment, dubbed the "Hong Kong stock direct train," is stuck at the starting gate pending approval from mainland authorities, causing major disappointment to thousands of mainland investors.

While the Bank of China (3988) said it is ready to start opening investment accounts at its Tianjin branch, through which individuals will be allowed to punt on Hong Kong-traded stocks, a Bejing-based spokesman for the bank told The Standard the investment program is "pending approval from authorities." The spokesman would not say when mainland investors could begin to channel their money to buy shares in Hong Kong. "The bank is ready. Once the approvals are gained, we could open accounts for interested investors," the spokesman said.

He rejected suggestions that technical issues are causing the delay.

Mainland sources said the program could not be launched as planned because it was too much of a rush. Rumors suggested that applications would be approved within this week.

Thousands of mainland investors who flocked to BOC branches yesterday went away disappointed. It is likely the euphoria will dissipate once they realize that investment procedures are complicated, apart from that fact they are unable to open accounts as yet.

A Guangzhou entrepreneur surnamed Yu who flew to Tianjin on Friday said he had a hard time figuring out the process. "I visited three branches [in Tianjin] to learn how to do this, but still I am unable to understand even the basic things like charges," Yu said.

Another investor, who gave his name as Li and who came from Beijing, lamented: "It is not that easy for non- Tianjin residents to invest."

He said it would take up more time and money than was first imagined.

"With the limited knowledge we have on Hong Kong stocks, I believe there won't be too many people rushing in," Li told reporters in Tianjin.

Investors also complained that only a few bank staff were available to assist with inquiries. "There were only two to three staff," a potential investor said.

Last Monday, the State Administration of Foreign Exchange surprised the market by announcing a program allowing Chinese residents to invest in overseas stocks directly through the northern city of Tianjin, in a move aimed at channeling out excess liquidity in the economy.

Bank of China's Tianjin Binhai branch and its Hong Kong-based brokerage BOC International were designated as the sole gateway.

Meanwhile, other mainland brokerage firms are eager to join the pilot scheme. Guotai Junan Securities and Shenyin Wanguo Securities, the second- and third-largest brokerages by assets, are said to have applied for licenses, according to Reuters.

Industrial and Commercial Bank of China (1398) and China Construction Bank (0939) also expressed their eagerness to be designated as the second batch of lenders to join the program by offering services in Shanghai.

Do business with the Mainland through Hong Kong...

... use CEPA (the Closer Economic Partnership Arrangement) to access more markets and save on tariffs!

In essence, CEPA is a World Trade Organisation (WTO)-compliant, free trade agreement. Strategically CEPA opens a new chapter in cross-border trade and investment between Hong Kong and the Mainland and it reinforces Hong Kong's role as a bridge between China and the rest of the world.

CEPA was signed in 2003 by the Central People's Government and the Government of the Hong Kong Special Administrative Region and came into full effect from 1 January 2004. It provides preferential access to the Mainland market and reduced tariffs for the export of certain finished goods and services by certain enterprises and individuals in Hong Kong, whether locally or foreign-owned.

CEPA currently affects:
trade in goods,
trade in services, and
trade and investment facilitation.
CEPA will evolve over time and new benefits will be introduced in phases.

On 27 August 2004, the second phase of the Mainland and Hong Kong Closer Economic Partnership Arrangement, known as CEPAII, was announced. With effect from 1 January 2005, more goods and services fell under CEPA and the benefits for many of the existing CEPA services were broadened.

On 18 October 2005, the third phase of CEPA, so-called CEPA III was signed. With effect from 1 January 2006, all finished goods* of Hong Kong origin may be exported tariff free to the Mainland upon the CEPA rules of origin being met. (* except for prohibited articles and articles that are subject to special requirements). Further liberalization measures in 10 service sectors were effective from 1 January 2006 – 9 sectors in the Mainland were opened further plus Mainland companies in the securities and futures industry have more opportunities in Hong Kong.

On 29 June 2006, further liberalisation measures under CEPA were announced. From 1 January 2007 the Mainland will further relax the market access to 10 areas in sectors already under the CEPA. Furthermore, trade and investment facilitation will be extended to include an eighth topic: protection of intellectual property.

This means that CEPA-qualified enterprises and individuals in Hong Kong, will have earlier and in some instances more privileges than will ultimately be available when doing business with the Mainland, following its accession to the World Trade Organisation (WTO).

For example, jewellery (a CEPA zero import tariff product) exported by a CEPA qualified Hong Kong enterprise or person, could enjoy zero import tariff. The same item exported once the Mainland has acceded to WTO will suffer a tariff rate of 20-35%.

These CEPA benefits are exclusive to Hong Kong and no other jurisdiction in the world can enjoy these preferential market access and import tariff rules. This package further strengthens Hong Kong's position as the ideal location from which to do business with China and underlines Hong Kong's importance as an international trade and business centre.

More stations for stalled `direct train'
Hong Kong Standard
Thursday, August 30, 2007

A trial scheme for mainland individuals to invest in Hong Kong stocks will be extended to cities other than Tianjin - the first gateway - as part of Beijing's initiatives to shift the economy to a lower gear and lend support for the local bourse hit by volatility following a strong run amid a global liquidity crunch.

Sources told Sing Tao Daily, the sister publication of The Standard, yesterday that the scheme dubbed the "Hong Kong stock direct train" will also include Beijing, Shenzhen and Shanghai.

The State Administration of Foreign Exchange opened the doors last Monday, designating Bank of China (3988) Tianjin Binhai New Area branches through which mainlanders can invest in securities traded on the Hong Kong exchange.

It was immediately estimated that this could open the floodgates for more than HK$300 billion to flow into Hong Kong shares, initially. It would also pave the way for a narrowing of valuation gaps between mainland-traded A shares and Hong Kong-listed H shares.

At the same time, it is being seen as a way for the mainland to allow capital to exit the country in a regulated manner, removing some of the excess liquidity.

The Tianjin trial run is yet to get off the ground, however, stuck without formal approvals, and potential investors in Tianjin have been kicking their heels and asking questions.

Sources close to authorities in Beijing told Sing Tao the trial scheme was hatched in the spring. "The central government picked two cities [Tianjin and Shanghai] and two banks [Industrial and Commercial Bank of China (1398) and Bank of China (3988)] initially to start preparatory work, including setting up the information technology systems," the source said.

A source from ICBC said: "We were surprised that only Tianjin was allowed to launch the project in the first wave. We [ICBC] have been preparing for a couple of months now."

In the wake of the SAFE announcement there were expectations that more cities will launch the program.

Commodities investment guru Jim Rogers also told Sing Tao the scheme was a "good thing" for the mainland and all domestic investors.

"China can now start to invest more overseas," Rogers said. But he emphasized that once the scheme kicks in, the interest in the domestic equity markets might be dampened and the value of the yuan may also take a hit. "But the impact will be very, very small."

Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said yesterday the scheme will benefit the Hong Kong market.

"With northern capital flowing south, the new pilot scheme is a very good policy which will initiate more cooperation between the two markets. I hope this scheme will expand to include more cities and allow more financial institutions to participate," Yam said.

Stanley Wong Yuen-fai, executive director of ICBC (Asia) (0349), said he is confident the scheme will not be limited to one city or one bank.

So far, however, the People's Bank of China has denied that it has any plans to extend the scheme to other cities.

China investors knock on door to take money to HK

TIANJIN, China, Sept 4 (Reuters) - Delays to a landmark scheme permitting Chinese citizens to buy Hong Kong shares directly are proving no deterrent to would-be investors eager to venture into the global stock market for the first time.

In a Tianjin branch of Bank of China, designated as the initial gateway for the pilot programme, investors are ushered into a wealth management centre to fill out the necessary forms and leave their contact details.

The service, dubbed "Hong Kong capital market express", should have been up and running as early as this week, but Bank of China has yet to receive regulatory approval.

"We're still waiting for notice of when the business can officially start," said a manager at the branch.

Officials at the China Securities Regulatory Commission have denied reports that the delay is due to squabbling between the agency and the banking regulator.

Concern that a flood of money into Hong Kong could drain too much cash from the banking system and the local stock market are among the reasons why the launch has been postponed, the Securities Times newspaper reported on Tuesday.

Investors in Hong Kong certainly seem to be anticipating a wall of mainland cash. Shares of Chinese companies listed in Hong Kong <.HSCE> have risen more than 25 percent since Beijing unveiled the plan on Aug. 20.

Zhang Guozhan, a government employee in the northeastern province of Heilongjiang, wants to be among the first wave.

He flew from Harbin and went straight to a Bank of China branch in Tianjin's New Binhai Area to open an account.

"I came here immediately after I landed," said the middle-aged Zhang, dressed in a T-shirt. "I want to invest in Hong Kong stocks because shares there are cheap."

Until now legal investment in Hong Kong shares has been off limits to most Chinese. People may put money in a handful of funds being gradually authorised to invest in overseas shares, but the minimum subscription is 300,000 yuan.

Although restricted for now to Tianjin, a port city near Beijing, Bank of China has said it will make the service available in 40 cities. Other big banks are lobbying for permission to launch similar schemes.

In the bank's Fanglinyuan branch, one of four piloting the programme, there are no brochures or advertisements, but bank clerks are busy handing out photocopied forms.

One manager walked a would-be investor through the paperwork:

"If you don't want to give information about your employer, you can just call yourself self-employed," he said.

Potential investors are told to leave copies of their identity cards or passport and may not take any signed documents out of the branch.

A worker from a nearby office had taken a break to come an open her account. "Can you please give me some forms, and I can fill them in as quickly as possible," she said when she was asked to wait for a while.

Within half an hour, eight people had signed up.

Hong Kong remains No. 1 overseas investor on mainland
Xinhua
Updated: 2007-09-08 14:32

Hong Kong maintained its position as the biggest overseas investor on the Chinese mainland in the first seven months of the year, according to the latest statistics from the Ministry of Commerce.

In the January-July period, Hong Kong invested US$12.3 billion on the mainland, up 20 percent from a year earlier, involving 8,782 projects.

Hong Kong had invested an accumulative US$292.1 billion on the mainland by the end of July, taking a 40-percent share in the total investment the mainland had received from overseas since 1978.

The mainland's exports to Hong Kong in the first seven months surged 23.9 percent to US$99 billion, while imports rose 14.2 percent to US$6.8 billion.

Meanwhile, the mainland saw the number of its Macao-invested projects increase 16 percent to 514, with investment value rising 15.9 percent to US$4 million.

The mainland's exports to Macao rose 23 percent to US$1.47 billion, while imports were down by 7.4 percent to US$150 million.

Hong Kong should be wary of China's approaching 'stock train'

HONG KONG, Sept 9, 2007 (AFP) - China's plan to allow mainland investors to buy Hong Kong stocks for the first time may further boost the territory's market, but analysts fear it could create a dangerous bubble.

China last month announced a pilot scheme to let individuals directly invest in stock markets outside the mainland for the first time, with a trial to be launched to purchase Hong Kong shares.

Beijing hopes the scheme, dubbed the "Hong Kong stock direct train," will help ease some of the excess liquidity on the mainland, and provide a greater choice of investments for the growing number of China's affluent.

The announcement created a frenzy in Hong Kong, with the local bourse recording its biggest one-day point gain in nine years, on expectations that tens of billions of US dollars would soon flood into the city.

Although the scheme has since been delayed as details over minimum investments and which banks will be allowed to offer the service are hammered out, it is still expected to provide a strong boost to the Hong Kong bourse when it is finally introduced.

Raymond So, associate dean in the faculty of business administration at the Chinese University, described the move as a "milestone" that will further strengthen Hong Kong's status as an international financial centre.

"When you have more Chinese funds pursuing Hong Kong stocks, this will attract more inflows of money from around the world," he said, adding it will also force mainland companies to be more competitive to attract investments.

But despite already fuelling soaring stock prices, which saw the Hang Seng Index cross the 24,000-point threshold for the first time, doubts remain over whether the move would be good for long-term stability without proper regulation.

Analysts fear the move could recreate in Hong Kong the volatility of the Shanghai market, which is partly caused by frenetic speculating by individual Chinese investors betting on short-term gains.

"It would certainly be good if the funds are coming to Hong Kong. But it would also transfer the bubble in China to here. You can expect to see more volatility," said Ben Kwong, head of research at KGI Asia.

"There's nothing you can do. Hong Kong's financial market is very free. This is just like gambling in a casino. You will see speculative elements (in trading) more frequently," he said.

The two economies have become more closely integrated in the past few years with more mainland companies listing their shares in Hong Kong, often alongside a listing in Shanghai.

Official figures show mainland enterprises accounted for more than half of the total market capitalisation here in August, up from 44 percent last year. They also accounted for 71 percent of turnover value in the month, up from 55 percent.

The China factor has helped push the total capitalisation of Hong Kong stocks to 18 trillion dollars, up 72 percent year-on-year.

With the same shares in the Chinese companies trading in the Hong Kong stock exchange selling much cheaper in Hong Kong than those in Shanghai, funds are expected to pour in here, which authorities hope will narrow the price gaps.

But Simon Ho, dean of the business school at the Hong Kong Baptist University, expressed fears that the attempts to close the gaps were dangerous, as share prices in China soared higher than their actual value.

Many of the firms are dogged with poor corporate governance and accounting standards, and a lack of transparency, he said.

"People think now that the Chinese investors can come down and invest and so the shares here will rocket. But a lot of these companies can't sustain their current price," Ho said.

"If we use the (Chinese) shares as a benchmark, we eventually will see a bubble in Hong Kong, too. That will be a concern," he said, adding the Chinese government should implement proper regulations to improve corporate governance.

There is also a fear that Shanghai's market will slump on the flow of money to Hong Kong, which could see some mainland investors -- used to healthy returns on the mainland bourse's exponential rise in recent months -- lose out, a situation Chinese authorities would want to avoid.

Despite the hype, Francis Lun, general manager of Fulbright Securities, believes the Hong Kong market will only see limited gains when the scheme is finally introduced, as mainland investors have already found ways to invest here.

"A lot of people have already taken a submarine here without taking the formal train. So there will be money coming in but it might not be as much as most people thought," he said.

Phase Five of the Closer Economic Partnership Agreement

The Hong Kong-China Closer Economic Partnership Agreement (Cepa) was further expand (Phase Five) on 29 June with the scope of liberalisation extended to 28 more service areas and 17 goods items. Under the new arrangements, Hong Kong owned tourism agencies would be allowed to operate alone or form jointly owned ventures in the Pan Pearl-River Delta region and organise package tours to Hong Kong. Likewise, Hong Kong-accredited medical practitioners with five-years working experiences in Mainland hospitals, after passing certain tests, will be allowed to set up self-financed or joint-venture medical practices in the mainland. Moreover, starting in 2008, the asset requirement for a Hong Kong bank to buy stakes in Chinese banks will be reduced to US$6 billion.

http://www.tid.gov.hk/english/cepa/tradeservices/trade_services_requirement.html

Agreement reached on CEPA expansion

The Hong Kong Special Administrative Region Government and the Central People's Government today (June 29) agreed on further services liberalisation and economic co-operation under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA).

The Financial Secretary, Mr Henry Tang and the Vice-Minister of Commerce, Mr Liao Xiaoqi, signed the Supplement IV to the CEPA. The Chief Executive, Mr Donald Tsang, and the Minister of Commerce, Mr Bo Xilai, witnessed the signing.

Welcoming the signing of the Supplement IV to the CEPA, Mr Tang said the new package of liberalisation and co-operation measures would provide further and broader opportunities for Hong Kong business and reinforce Hong Kong's comparative advantages in better tapping the potential of the Mainland market.

"The CEPA package provides a positive response to a number of recommendations in the Final Report of the Economic Summit on China's 11th Five-Year Plan and the Development of Hong Kong, which call for the opening up of further market opportunities on the Mainland," Mr Tang said.

Under Supplement IV to the CEPA, the Mainland will introduce 40 liberalisation measures in 28 services areas, including existing ones such as banking, tourism, convention and exhibition, and medical, plus 11 new ones including elderly services, environmental services and public utilities. The two sides will also enhance co-operation in finance, convention and exhibition, and mutual recognition of professional qualifications.

In banking, the minimum total asset requirement for a Hong Kong bank acquiring a shareholding in a Mainland bank will be lowered from US$10 billion to US$6 billion. Both sides will enhance co-operation including establishing green lanes for Hong Kong banks to set up branches in the central western and north eastern areas and in Guangdong, and encouraging Mainland banks to set up subsidiary operations in Hong Kong.

In relation to conventions and exhibitions, Hong Kong services suppliers will be allowed to organise exhibitions in Guangdong and Shanghai through cross-border supply on a pilot basis. In addition, Hong Kong enterprises established in Guangdong and Shanghai will be allowed to organise overseas exhibitions for Mainland enterprises in these areas. The Mainland will also support Hong Kong in attracting and organising large scale international conventions and exhibitions.

In tourism, the minimum annual business turnover required of a Hong Kong travel enterprise setting up joint venture and wholly owned enterprises on the Mainland will be reduced to US$8 million and US$15 million respectively. Hong Kong travel agencies established in Guangxi, Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan provinces will be allowed to apply for the operation of group tours to Hong Kong and Macau for the permanent residents in these provinces, an extension of similar arrangement already in place in Guangdong on a pilot basis.

The required capital investment required of Hong Kong service suppliers for setting up equity or contractual joint-venture medical institutions on the Mainland will be lowered from RMB20 million to RMB10 million.

In addition, Supplement IV to the CEPA opens up the Mainland market in 11 new service areas. Hong Kong service providers will be allowed to operate elderly service agencies in the form of wholly-owned private non-government enterprises to provide elderly services in Guangdong Province on a pilot basis. Hong Kong service providers will also be allowed to establish wholly-owned enterprises to provide environmental services on the Mainland. On public utilities, Hong Kong service providers will be allowed to set up wholly-owned operations to construct and operate networks of gas, heating, water supply and water drainage for medium-sized cities on the Mainland.

All the services liberalisation measures will come into force on January 1, 2008. The Mainland will work out and promulgate the necessary implementation rules and regulations as appropriate.

Mr Tang said CEPA had played an important role in the economic development of both Hong Kong and the Mainland. The latest study of the Administration indicated that between 2004 and 2006, CEPA generated 36,000 new jobs for Hong Kong residents and induced HK$5.1 billion additional capital investment in Hong Kong. CEPA also created 16,000 new jobs for Mainlanders and attracted HK$9.2 billion additional capital investment by Hong Kong companies on the Mainland.

"The implementation outcomes indicate that CEPA is a mutually beneficial arrangement, allowing Hong Kong to explore the vast Mainland market while assisting the Mainland in integrating with the world economy," Mr Tang said.

"Both sides will continue to ensure the smooth implementation of CEPA and seek to further enrich its content."

The CEPA was first signed in June, 2003. Under CEPA, the Mainland has agreed to give all products of Hong Kong origin tariff free treatment if they meet the CEPA rules of origin. On trade in services, the Mainland has already allowed preferential treatment to Hong Kong service suppliers in 27 service areas. Details on CEPA including the newly agreed liberalisation and co-operation measures in the Supplement IV to the CEPA are available on the Trade and Industry Department's CEPA dedicated website at http://www.tid.gov.hk/english/cepa/index.html

Money train slows down
Hong Kong Standard
Saturday, September 22, 2007

There will be a limit on the amount of money that can be put on board the investment "direct train," dampening local investors' hopes that 800 billion yuan (HK$829 billion) or more could pour into Hong Kong through the pilot program.

"That goes to show that the original thinking was sort of wishful thinking," said Phillip Securities director Louis Wong Wai-kit.

Although there will be no limit on how much any individual can invest, there will be "tight controls" on the total amount invested through the scheme, China Banking Regulatory Commission chairman Liu Mingkang told the Financial Times.

Liu did not say what level the quota would be set at.

"I think there will be some short- term disappointment," Wong said. "People will realize it is not what they imagined at first."

The most bullish of analysts predicted that between US$100 billion (HK$780 billion) and US$1 trillion could be channeled into Hong Kong stocks through the scheme over the next year.

The State Administration of Foreign Exchange "can lift and readjust the quota if necessary and appropriate," Liu was quoted as saying. "It's a flexible ceiling."

Mainland regulators are worried about controlling the risk for mainland investors, according to Wong.

"They will take incremental steps to implement the scheme, to ensure that any risk will be at a manageable level," he said.

Some analysts thought the newly- announced cap reflected internal conflicts within the government about whether the "direct train" pilot scheme would prove too popular, weakening other methods for channeling funds outside the mainland like the Qualified Domestic Institutional Investor scheme.

"Simply put, we are supportive [of the through-train scheme]," the paper quoted Liu as saying.

BOC Hong Kong (2388) vice chairman He Guangbei said he thinks the direct-train scheme will not replace the QDII scheme.

Mainland investors generally do not have sufficient knowledge of the Hong Kong stock market, He said.

China backs HK direct stock investment plan -Yam

BEIJING, Nov 15 (Reuters) - A landmark scheme to permit Chinese residents to invest directly in Hong Kong equities remains on track, Joseph Yam, head of the Hong Kong Monetary Authority, said on Thursday.

Yam said all departments of the Chinese government support the plan in principle and are in the process of drafting measures to control the risks that the scheme entails.

"We've had very fruitful exchanges of views as to where the risks are in terms of these proposals and how the risks should be managed," Yam told reporters.

He said there was no timetable for the launch of the direct investment programme, dubbed "through train" in the media.

"Now it's only when the risks are identified, and proper risk management measures are put in place, before these proposals can be implemented. We've had very good discussions on that," Yam said.

The plan is an integral part of China's strategy to encourage private capital outflows in order to relieve upward pressure on the yuan and give people a broader range of investment options.

Under China's capital controls, residents may invest in overseas securities only through designated banks and fund managers. The amount of money that these Qualified Domestic Institutional Investors (QDII) may send abroad is strictly capped.

China's currency regulator, the State Administration of Foreign Exchange (SAFE), announced plans for the direct investment programme on Aug. 20.

Hong Kong stocks immediately soared in anticipation of a wall of Chinese money, but it soon became clear that SAFE had not obtained the final consent of other parts of the government.

Premier Wen Jiabao confirmed on Nov. 3 that the plan was on hold pending a review of the risks involved.

Policy makers are variously worried that inexperienced Chinese savers could lose money to savvy global investors or that an exodus of mainland cash could undermine support for high-flying domestic shares.

Yam, who had meetings in Beijing with the banking and securities regulators as well as with the central bank, was due to leave the capital for Tianjin -- the northern city initially designated as the gateway for the direct investment plan.

Peter Sullivan, chief executive of Standard Chartered Bank in Hong Kong, one of the bankers accompanying Yam, said discussions with the Chinese authorities had also touched on expanding the QDII scheme. (Reporting by Simon Rabinovitch; Writing by Alan Wheatley, editing by Ken Wills)

Threshold possible for China-HK stock scheme -Yam

HONG KONG, Nov 29 (Reuters) - A minimum investment threshold could be imposed for mainland Chinese, who should soon be allowed to invest in Hong Kong shares, as a protective measure, the head of the Hong Kong Monetary Authority said on Thursday.

However, Joseph Yam, chief executive of Hong Kong's central bank, said regulatory standards in Hong Kong's financial markets were probably among the highest in the world and should be good enough to safeguard mainland Chinese.

"I would argue, in terms of investor protection, that what is good for Hong Kong investors should also be good for mainland investors," Yam wrote in a weekly column published on the HKMA's Web site, www.info.gov.hk/hkma .

He conceded, however, that some people might think mainland Chinese, unfamiliar with a free-market economy, may require more protection.

"If it is considered that mainland investors making such cross-border investments require more protection, a threshold for the amount of money that an individual is allowed to invest overseas could be imposed so that the channel is only available to larger and more sophisticated investors," Yam said.

China's currency regulator, the State Administration of Foreign Exchange (SAFE), announced in August that Beijing planned to allow its citizens to invest directly in the Hong Kong stock market, triggering a surge in Hong Kong shares in anticipation of a wall of Chinese money.

However, the scheme, dubbed the "through train", has been put on hold since it became clear that SAFE had not secured the final approval of other government ministries.

Some mainland officials are concerned that novice mainland investors would be out of their depth in Hong Kong and could lose heavily. Other policymakers worry that too much cash could flow out, undermining support for China's domestic bourses.

A Chinese government adviser said on Thursday the scheme would definitely go ahead.

Yam said China's enormous liquidity together with a high inflation rate, now running above 6 percent, and appreciation pressure on its yuan <CNY=CFXS> currency indicated that a relaxation of capital controls in China may be overdue.

Allowing mainlanders to invest in Hong Kong would create a safe and orderly flow of capital and discourage underground capital flows, while giving mainlanders more freedom to earn a return on their money.

"After all, for individuals who already have foreign currency, it seems a little harsh to limit them to holding it in the banking system on the mainland in the form of deposits earning low interest, instead of allowing them to move their own foreign currency to other jurisdictions where there are investment avenues promising a higher rate of risk-adjusted return," Yam said.

POLL-China growth set to fuel Hong Kong stocks further

HONG KONG, Dec 10 (Reuters) - Hong Kong stocks should rise in 2008, according to a poll conducted by Reuters, underpinned by still-low interest rates, China's rapid growth and rising fund flows from the mainland.

But it is not expected to match what is shaping up to be a stellar year in 2007, given prospects of further distress in the credit markets and a slowing U.S. economy.

Beijing's campaign to cool rapid investment growth could also temper the year ahead. China raised the bank reserve requirement ratio by 100 basis points to a record 14.5 percent on Saturday.

Still, many say China's strong economic growth and sustained liquidity through lower U.S. interest rates should cushion Hong Kong from any hard blows.

In 2008, Hong Kong's benchmark index, the Hang Seng Index <.HSI>, is expected to rise 19 percent from current levels to end the year at 34,000, according to the median forecast of 14 analysts polled by Reuters from Dec. 3-7.

Though economists are not predicting a hard landing in the event of a U.S. recession, some are sounding the alarm on the effects of China's tightening policy.

"There's accumulated pressure on the economy from the austerity measures," said Linus Yip, strategist at First Shanghai Securities. "We don't know how that's going to play out."

Hong Kong's equities market, the world's seventh-largest, is poised to rank among the best-performing major markets in 2007. The Hang Seng is up 43 percent so far this year, and the China Enterprises Index of Hong Kong-listed mainland companies <.HSCE>, or H shares, is up 66 percent.

Investors worldwide have sought exposure to China's double-digit economic growth through Hong Kong's stock market, where mainland companies account for about 30 percent of the total number of listed companies and well over half its total market capitalisation and turnover.

DECOUPLING FROM WALL ST?

This year, mainland China became an even more important source of fund flow for Hong Kong's stock market. Analysts expect much more of the same next year, as Beijing is increasingly encouraging capital outflows to relieve the pressure on its rising currency and slow the build-up of its massive foreign reserves.

This policy sits well with mainland investors who want to diversify their enormous savings beyond the limited investment options in their home markets, where flows are restricted by strict capital controls.

In the year ahead, some predict that Hong Kong, which is increasingly an emerging market play due to its mainland listings, could forge its own path and decouple from Wall Street.

Hong Kong's minimal exposure to the subprime crisis helps, but its access to cheap money from China will be key.

This year, as ample liquidity drove the global, multi-year bull run, stocks posted strong gains across the board. But in the coming year when analysts say markets will be volatile, rocked by more bad news emerging from the credit turmoil, investors will have to be more selective.

"Certain sectors, like infrastructure and domestic consumption are likely to outperform," said Mona Chung, fund manager at Daiwa Asset Management. "They will be more resilient than export-related plays and commodities, which are more influenced by global prices."

The Beijing-hosted Olympics next summer has also been tipped as a stimulus to the city's stock market and especially positive to retailers and other consumer-oriented sectors.

Hong Kong's property developers are also coming back into favour, as a combination of low U.S. interest rates and rising Hong Kong inflation could deliver negative real interest rates in the territory.

Hong Kong's rate cycle tends to track the U.S.'s since its currency is pegged to the U.S. dollar.

"If inflation worsens, you will get a negative or close to zero lending rate," said Andrew Look, Hong Kong strategist at UBS. "Now that is very encouraging with respect to asset price reflation, so we are very positive for properties and (Hong Kong) banks on recovery of loan growth."

HK direct investment plan risks manageable -HKMA'S Yam

BEIJING, Dec 13 (Reuters) - The risks involved in the plan to allow direct mainland investment in Hong Kong financial markets are manageable, Joseph Yam, the head of Hong Kong Monetary Authority (HKMA), said on Thursday.

The HKMA has come up with a plan for mitigating risks for both mainland and Hong Kong markets and has submitted this to the Chinese Cabinet, Yam told reporters.

"These are risks that can be managed and can be managed quite effectively," he said.

Yam said Hong Kong is awaiting Beijing's approval to launch the so-called "through train", adding that there was no timetable for the plan.

Yam urges Shenzhen test for 'through-train'
Hong Kong Standard
Thursday, December 20, 2007

Monetary Authority chief executive Joseph Yam Chi-kwong has urged China to release some of its vast pool of foreign exchange savings by allowing its residents to invest through Hong Kong.

He suggested the central government use Shenzhen as a testing ground for the effectiveness of a free flow of capital between the two cities.

Yam said he saw Shenzhen as the best trial city due to the its close economic and geographical ties with Hong Kong.

"One can think of it as an experiment or as the first step towards full liberalization of foreign exchange control in China," said Fred Kwan Yun-keung, Professor of economics and finance at City University of Hong Kong.

Kwan said this would introduce limited convertibility of the Chinese yuan in Shenzhen and help identify problems.

But, he added, China would be very cautious before approving the proposal and cited delays in the "through-train" program.

"The Chinese government will be prudent because there are many implications due to imperfections in other aspects of the economy such as a lack of proper financial regulations or laws."

Hong Kong Baptist University finance professor Billy Mak Sui-choi said there is a real need for the free flow of capital between Shenzhen and Hong Kong.

"A lot of firms use an underground financial system to convert yuan into foreign currencies and vice versa because there is foreign exchange control in the mainland," Mak said.

Yam believes the risks can be managed through regulating the amount of currency in circulation, entry thresholds and joint supervision and management.

By the end of October 2007 the mainland's foreign currency deposits had soared to US$52.4 billion (HK$408 billion).

China should proceed with HK investment plan-researcher

BEIJING, Dec 27 (Reuters) - Beijing should move ahead with a delayed scheme to allow Chinese individuals to directly buy stocks in Hong Kong, a prominent economist said, adding that the money flows would be manageable.

China's currency regulator unveiled plans for the programme on Aug. 20, as a way of encouraging capital outflows and thus better balancing the country's international payments.

Hong Kong-listed shares soared following news of the plan, dubbed the "through train", but have since pulled back in part because of reported disagreements among government agencies, raising concerns about Beijing's commitment to follow through.

Some policymakers are worried that it would represent too much of a departure from Beijing's staunch capital controls.

"Worries that the plan will make a big dent in our capital controls are really unnecessary because we can absolutely control the exact size and set specific thresholds for the outflows," Ba Shusong, a senior government economist, wrote in the China Securities Journal on Thursday.

"This is a suitable relaxing of the capital controls and will help balance international payments as well as ease some of the pressure behind internal economic imbalances," wrote Ba, a researcher with the Development Research Centre, a key cabinet think-tank.

Ba said that China's current capital monitoring system was capable of closely tracking most money flows and could spot potential risks.

He also said Beijing should allow more flexibility in the yuan's <CNY=CFXS> exchange rate, both nominal and real, to help prevent inflation from spilling over into the wider economy.

Excess liquidity resulting from the rising trade surplus was the root cause of surging inflation, Ba said, meaning exchange rate policy should play a role in managing it.

Consumer prices rose 6.9 percent in the year to November, the fastest pace in 11 years, prompting concerns that price rises could expand beyond food into the broader economy.

"China is still in the early stage of its price rise cycle and many inflationary pressures from within the domestic economy have yet to be felt," Ba wrote.

If structural reforms are not put into place in a timely manner, price rises in specific sectors might spread and build into broad-based inflation, he added.

Although a stronger yuan might hit some Chinese exporters and employment, Ba said the government could help by offering them fiscal support and encouraging workers to shift from export-oriented industries into the domestic service sector.

Ba noted that it would be increasingly difficult for China to ease price rises by raising interest rates when the United States is moving in the opposite direction, because that would only attract more speculative capital inflows.

The yuan traded as high as 7.3131 against the dollar on Thursday, the strongest since the July 2005 revaluation, after the central bank set its daily mid-point at 7.3079, much stronger than Wednesday's close of 7.3444 yuan.

Booming Hong Kong cuts taxes as surplus soars

27 February 2008

HONG KONG (AFP) — Hong Kong's financial chief on Wednesday promised sweeping tax cuts for workers and businesses and abolished duty on wine and beer on the back of a record budget surplus.

In his maiden budget speech, Financial Secretary John Tsang said he would increase spending on health services and introduce measures to bridge the widening wealth gap and reduce air pollution.

Duty on beer and wine will be abolished with immediate effect in a move aimed at creating a regional wine trading and distribution market in the southern Chinese territory, he said.

Wine consumption in Asia has risen sharply in recent years and Tsang said industry forecasts suggested there would be "considerable growth in table wine spending in this region."

Tsang said the giveaways were made possible by a record budget surplus estimated at 115.6 billion dollars (14.8 billion US) in the year to March, four and a half times the government's forecast and nearly twice as much as last year's figure.

The territory's reserves will reach 484.9 billion dollars, he said.

Tsang, who took over as financial chief last July, attributed the surplus to higher-than-expected tax revenues from the city's booming stock and property markets as well as company profits and salaries.

Income taxes -- already among the lowest in the world -- will be cut to 15 percent in 2008-09 from 16 percent, while the corporate tax rate will fall to 16.5 percent from 17.5 percent.

Tsang announced a one-off 75 percent income tax rebate, up to a 25,000-dollar ceiling, and a rise in various tax allowances. Property taxes will also be subject to a one-off 75 percent rebate, up to a 25,000-dollar limit.

To combat worsening pollution, the government will introduce tax concessions for environmentally-friendly commercial vehicles and for companies that use green machinery and equipment.

The huge spending spree means Hong Kong will incur a 7.5 billion dollar deficit in 2008-09, Tsang said.

But credit agency Standard and Poor's said it would not affect Hong Kong's rating.

"This stance is prudent in view of the uncertainties over near-term fiscal performance," said S and P credit analyst Kim Eng Tan.

Tsang said he would use this year's budget surplus to help elderly or disadvantaged people and those on low incomes who had not benefited from the city's economic boom but had been hit hardest by rising prices.

He announced one-off welfare payments, an increase in old age and disability allowances and increased spending on health care.

The government also plans to use its swelling coffers to boost tourism, building a new cruise terminal and increasing the capacity of its two runways to meet the expected growth in air traffic, with a third runway being considered.

Looking ahead, Tsang said he was "cautiously optimistic" about the city's economic prospects for 2008, forecasting growth of between four and five percent in 2008/09 with inflation at 4.5 percent.

Tsang said the impact on Asia and Hong Kong of the credit crunch in the United States and Europe had so far been limited, but warned the city could be hit by the resulting global uncertainty.

"We should be aware of the possibility that the situation might deteriorate in the near future and that the fallout may be prolonged," he said, adding he would be cautious about future spending in the face of a global economic slowdown and rising inflation.

Tsang said the economies of Hong Kong and China were becoming more closely integrated, with the mainland economy now at a crucial stage of change.

He cautioned that the upgrading of mainland industries would bring more competition to Hong Kong, while measures to cool China's overheating economy could also impact the city.

Budget surpluses, ultra-low levels of corruption, high sovereign credit ratings, high amount of national budget that is supported by a strong revenue stream ALL translate into microeconomic benefits which include:

-Efficient mass-transit system (a world-class rapid transit model)
-well-paved roads
-world-class airport that is huge (so huge that it was featured on the Discovery Channel)
-Fusing urban development and technological innovation (e.g. Cyberport)
-High-speed internet (ie. PCCW broadband internet at 1000 Mbps/1Gbps)
-Pay-TV services that are advanced such as Now Broadband TV (where you can watch Animax in up to 4 audio languages and 8 subtitles languages:nuts:!!!)
-Home base of Avex Group outside Japan
-HK Disneyland and its well-developed attractions
-Largest concentration of PS3 owners in East Asia (outside Japan)
-Video arcades/game centers that have up-to-date games with internet connections

and those are just the appetizers.......

In whole seriousness, I really want to ask:
How does Hong Kong do it?

I mean, even in the face of financial crisis (ie.9/11 economic crisis, SARS/Avian flu outbreak, Subprime mortgage,etc.), it appears that HK still manages to stand up firm (while other less developed economies start to break down).

What is their secret formula to reaching economic success (which helped them become an economic tiger)???

Other innovative, successful technologies in use include the Octopus smart card system and the Hong Kong Biometric Identity card.

My guess is that... Hong Kong has lots of people and very little land to manage for building infrastructure? The government makes a killing on plot sales of land.

Budget surpluses, ultra-low levels of corruption, high sovereign credit ratings, high amount of national budget that is supported by a strong revenue stream ALL translate into microeconomic benefits which include:

-Efficient mass-transit system (a world-class rapid transit model)


Well-paved roads? I doubt so. Ultra-low level of corruption? There is evidence showing the number of corruption cases is on the rise.

China Development Bank to open Hong Kong branch

HONG KONG, June 25 (Reuters) - The Hong Kong Monetary Authority (HKMA), Hong Kong's central bank, approved China Development Bank (CDB) to open a branch in the former British colony, it said on Thursday.

State-owned CDB, which is converting into a commercial bank from a policy bank that lends in line with government initiatives, was granted a Hong Kong banking licence, the HKMA said in a statement.

CDB is China's fifth-largest commercial bank in terms of total assets, according to the HKMA statement.

CDB was one of China's three policy lenders to give financial support to government-backed projects, including some key investments abroad led by major Chinese state-owned enterprises.